Posted on: 5/19/2011
John R. Campo
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In California, a reference to a “White Waiver” refers to the California Supreme Court decision in White v. Western Title Insurance Co., 40 Cal. 3d 870 (1985). A White Waiver tends to come up any time an insurer is attempting to negotiate the resolution of a coverage dispute, and does not want its settlement offers to be deemed to be a concession of coverage, or evidence of bad faith in a subsequent lawsuit. As discussed below, the California Supreme Court in White affirmed the introduction of some of the carrier’s settlement offers into evidence on the issue of bad faith.
The facts of White are a bit convoluted, but it is important to point out that the case involved a claim made under a Title Insurance Policy, such that it was a first-party claim for coverage. The insured made a claim for payment based upon the fact that the property it purchased had an undisclosed easement, that lowered the property’s value. The carrier declined to make payment on the claim, believing that the diminished value fell under an exclusion. The insured then brought suit, alleging breach of contract (failure to pay the claim) and negligence for failing to note the easement when the policy was originally issued.
As in most jurisdictions, there is a well established policy in California that prohibits one party from introducing evidence of a settlement offer as evidence of liability on the dispute. In California this concept is generally embodied in Evidence Code §1119-1120 (prohibiting admissibility of evidence made in mediation) and specifically embodied in Evidence Code §1152 (prohibiting admissibility of offers to compromise). Protection against the admissibility of settlement offers is also embodied in Cal. Code of Civ. Proc. §998. In CCP § 998, an offer of settlement or judgment that is made pursuant to that section cannot later be given in evidence upon the trial or arbitration.
So with all these prohibitions against the admissibility of settlement offers, why does a carrier need a “White Waiver?” The Answer is because in California, an insurer faces liability for not only a breach of contract (failure to pay a benefit when due), but also the separate but related breach of the implied covenant of good faith and fair dealing (for unreasonably breaching the contract).
The California Supreme Court has held that the duty of good faith remains even after a dispute has arisen between the insured and carrier. Although the insured and insurer may be deemed adversaries at that time, the carrier must still act in good faith in continuing to investigate and resolve the original claim itself, until liability on that original claim has been determined. If the carrier is ultimately determined to have no obligation on the claim, then there is no breach of contract, and there cannot be any “bad faith” regardless of how the claim was handled. Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136 (1990); Horsemen’s Benevolent & Protective Ass’n, Inc. v. Ins. Co. of N. Am., 222 Cal. App. 3d 816 (1990).
What the Supreme Court held in White was essentially this. Where an insured makes a claim, and the carrier questions the extent of coverage, a duty of good faith requires the carrier to continue to evaluate coverage for the initial claim, even if the insured files suit alleging breach of contract. White, 40 Cal. 3d at 885. During the pendency of the claim, and while it is in dispute, the carrier can make settlement offers to its insured and none of these offers are admissible to prove liability or coverage for the claim itself. Whether the claim is covered will be determined by the facts as applied to the policy terms. Any settlement offers or offers of payment or compromise will not be admissible to prove (or disprove) coverage.
However, IF the court determines that there is coverage for the claim, the carrier’s previous offers CAN be admitted in a subsequent trial on the issue of bad faith. If there had been an initial finding of no coverage, then there could be no subsequent determination of bad faith, because bad faith cannot be maintained where there was no coverage. However, if coverage is found, the earlier settlement offers can be admitted under White.
The Supreme Court reconciled its decision with the language of EC 1152 and CCP 998 by pointing out that those statutes only prohibit the introduction of such offers to prove liability on the dispute. Neither the trial court nor the Supreme Court in White allowed the introduction of such offers as evidence at trial of whether the underlying claim was covered. The offers only came in on the subsequent trial on bad faith. In White, the Supreme Court specifically noted that the carrier’s CCP 998 offer made during the pendency of the bad faith suit, and after the finding of liability on the contract, was properly excluded by the trial court.
The court stated:
Both defendants’ offers of compromise were submitted before plaintiffs had filed a claim for damages for breach of the covenant of good faith and fair dealing. Both sought only to compromise plaintiffs’ original contractual and negligence claims. Under our construction of the statutes, those offers were inadmissible to prove liability on plaintiffs’ original causes of action, but were admissible to prove liability for breach of the covenant. That is exactly how matters proceeded: the trial court bifurcated the trial, and admitted the offers into evidence only on the issue of liability for breach of the covenant. 12
The footnote 12 that is referenced at the end of the above paragraph states:
12 We find no error in the trial court’s exclusion of a $15,000 settlement offer made after the interlocutory judgment of liability in August of 1981. Once the court had determined liability, defendant’s willingness to make a reasonable settlement offer has little tendency to prove that defendant has been acting fairly and in good faith toward its insured.
EC §1152 was amended in 1987, just two years after the White decision. The purpose of the amendment clearly appears to be a response to the decision in White. The 1987 amendment to E.C. §1152 added subdivision (b) that now reads:
(b) In the event that evidence of an offer to compromise is admitted in an action for breach of the covenant of good faith and fair dealing or violation of subdivision (h) of Section 790.03 of the Insurance Code, then at the request of the party against whom the evidence is admitted, or at the request of the party who made the offer to compromise that was admitted, evidence relating to any other offer or counteroffer to compromise the same or substantially the same claimed loss or damage shall also be admissible for the same purpose as the initial evidence regarding settlement. Other than as may be admitted in an action for breach of the covenant of good faith and fair dealing or violation of subdivision (h) of Section 790.03 of the Insurance Code, evidence of settlement offers shall not be admitted in a motion for a new trial, in any proceeding involving an additur or remittitur, or on appeal.
Notably, the amendment does not determine when such an offer is admissible nor does it change the rule of whether or not a carrier’s offer to compromise a dispute is admissible. Rather, this amendment provides an option for the party against whom the offer has been introduced, and this party will generally be the carrier. Subdivision (b) applies “in the event that evidence of an offer to compromise is admitted in an action for breach of the covenant of good faith and fair dealing.” In that event, the party (carrier) can choose to admit evidence of other offers and negotiations. In other words, the carrier can rebut allegations of bad faith by showing the totality of its offers, and presumably the basis for making each when made.
As such, a White Waiver is still a good idea if a carrier is involved in pre-suit settlement discussions on an open first-party claim. If such a waiver was not secured, the protection afforded by EC 1152(b) provides a bit of a safety net to the carrier, whose previous offers were reasonable when made.
The White decision involved a dispute over a first-party claim, and its rationale makes sense in that context. The decision may have little bearing on a carrier’s investigation and handling of a third-party liability claim, since such claims involve a duty to defend and then resolve the third-party liability claim. There is an entire body of law that deals with a carrier’s satisfaction of the duty to defend, the results of wrongfully failing to defend a case, and the impact of failing to settle liability claims that are not the subject of this article. However, it doesn’t hurt to have a White Waiver in hand when negotiating disputes with the insured in that context as well.
John R. Campo is a partner at Branson, Brinkop, Griffith & Strong, LLP.